ICU Research: Liquidity continues to decline

As the result of Wednesday's cashflows, total banking sector liquidity fell only UAH0.37bn to UAH96.93bn, just UAH1.72 above the lowest level of this year. The decline in liquidity was caused by outflows to the Treasury which absorbed UAH0.81bn, half of which paid for new government bonds. Nearly half of the outflows was compensated by inflows from the change in cash of UAH0.42bn.

At the same time, banks significantly decreased investments in CDs, reduced total CDs outstanding by UAH4.09bn to UAH48.02bn, reallocated funds to accounts at the NBU, and increased banks' correspondent accounts' balance with the NBU by UAH3.72bn to UAH48.91bn.

Investment implications: The Treasury significantly decreased its negative impact on liquidity, but this did not allow liquidity to stabilize or rise on Wednesday. The significant reallocation could indicate that liquidity could fall soon, but it also could have occurred prior the NBU board meeting yesterday. So, liquidity should remain volatile, but at the end of next week could fall significantly due to quarterly tax payments that start in the second half of August.